Passive investing in index funds can generate returns that are about the same as the overall market. But you can do better than that by choosing stocks that are better than the average (as part of a diversified portfolio). for example, Encompass Health Corporation (NYSE:EHC) stock is up 37% over the past year, clearly outperforming the market return of around 26% (not including dividends). That should put a smile on the faces of shareholders. That being said, the long-term returns aren’t that impressive, with the stock only up 2.1% over three years.
It’s also worth looking at the company’s fundamentals here. That’s because it helps determine whether long-term shareholder returns are consistent with the performance of the underlying business.
Check out our latest analysis for Encompass Health.
To paraphrase Benjamin Graham, in the short term the market is a voting machine, but in the long term it is a weighing machine. One imperfect but simple way to consider how the market perception of a company has changed is to compare the change in the earnings per share (EPS) with the share price movement.
Over the last year, Encompass Health grew its earnings per share (EPS) by 41%. This EPS growth is pretty close to the 37% increase in the share price. This suggests that market sentiment surrounding the company hasn’t changed much over that time. We think it’s no coincidence that stock prices are growing at the same rate as earnings per share.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Encompass Health’s earnings have improved recently, but will its earnings grow? Find out if analysts think Encompass Health will grow its earnings in the future.
different perspective
It’s good to see that Encompass Health returned a total shareholder return of 38% to shareholders over the last twelve months. Of course, this includes dividends. This is better than the 13% annualized return over the past five years, suggesting that the company has performed well of late. In the best-case scenario, this could signal real business momentum and suggest that now could be a great time to dig deeper. It’s always interesting to track stock performance over the long term. However, to understand Encompass Health better, you need to consider many other factors. For example, we discovered that 1 warning sign for Encompass Health What you need to know before investing here.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
